b. Now calculate the cost of common equity from retained earnings, using the CAPM method.%c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r. and r, as determined by the DCF method, and add that differential to the CAPM value for r.)%d. If Skye continues to use the same market-value capital structure, what is the firm's WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?(Hint: Use the market value capital structure excluding current liabilities to determine the weights. Also, use the simple average of the required values obtained under the two methods in calculating WACC.)WACC;:%WACC2:% Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars):2021Current assets$1,400Net fixed assets2,600Total assets$4,000Accounts payable and accruals$ 900Short-term debt200Long-term debt1,000Preferred stock (10,000 shares)250Common stock (40,000 shares)800Retained earnings850Total common equity$1,650Total liabilities and equity$4,000Skye's earnings per share last year were $2.90. The common stock sells for $45.00, last year's dividend (Do) was $2.00, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting thatthe common dividend will grow at an annual rate of 10%. Skye's preferred stock pays a dividend of $3.00 per share, and its preferred stock sells for $30.00 per share. The firm's before-tax cost of debt is 12%, and its marginal taxrate is 25%. The firm's currently outstanding 12% annual coupon rate, long-term debt sells at par value. The market risk premium is 4%, the risk-free rate is 5%, and Skye's beta is 1.432. The firm's total debt, which is the sum ofthe company's short-term debt and long-term debt, equals $1.2 million.The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Round your answers to two decimalplaces.Download spreadsheet Calculating the WACC-dbfce7.xlsxa. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to findthe cost of common equity.After-tax cost of debt:%Cost of preferred stock:%Cost of retained earnings:%Cost of new common stock:%

After tax cost of debt is the cost of debt after deducting the taxes. After-tax cost of debt =…

Answered: b. Now calculate the cost of common…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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CaLCULatING the WaCC Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): 2021 Current assets Net fixed assets Total assets Accounts payable and accruals Short-term debt Long-term debt Preferred stock (10,000 shares) Common stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity $2,000 3,000 $5,000 $ 900 100 1,100 250 1,300 1,350 $2,650 $5,000 Skye’s earnings per share last year were $3.20. The common stock sells for $55.00, last year’s dividend (D0 ) was $2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skye’s preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30.00 per share. The firm’s before-tax cost of debt is 10%, and its marginal tax rate is 25%. The firm’s currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market…
The Statement of Financial Position (SFP) of Arthur Corporation on June 30, 202X is presented below:Current Assets P195,000Land 1,320,000Building 660,000Equipment 525,000Total Assets P2,700,000Liabilities P525,000Ordinary Shares, P5 par 900,00Share Premium 825,000Retained Earnings 450,000Total Equities P2,700,000All the assets and liabilities of Arthur were assumed to approximate their fair values except for land and building. It is estimated that the land has a fair value of P2,100,000, and the fair value of the building increased by P480,000. Ezekeil Corporation acquired 80% of Arthur’s outstanding shares for P3,000,000. The non-controlling interest is measured at fair value.Required:a. Determine the goodwill or gain on bargain purchase assuming the consideration paid includes control premium of P852,000. Determine the goodwill or gain on bargain purchase assuming the consideration paid excludes control premium of P138,000 and the fair value of the non-controlling interest is…
GM has the following balances at Dec31,2021: Operating Assets $ 1,200,000 Financial Assets 800,000 Operating Liabilities 200,000 Financial liabilities 1,400,000 Operating Income 200,000 Tax Rate % 40 Net Income 110,000 Preferred Stock dividends 10,000 Required: Calculate the following (use 2021 ending balances only): Return on Net Operating Assets – RNOA Return on Common Equity – ROCE Justify and analyze your findings in required (1)
The balance sheet for Fanning Corporation follows: Current assets $ 247,000 Long-term assets (net) 752,000 Total assets $ 999,000 Current liabilities $ 144,000 Long-term liabilities 452,000 Total liabilities 596,000 Common stock and retained earnings 403,000 Total liabilities and stockholders’ equity $ 999,000 RequiredCompute the following. (Round "Ratios" to 1 decimal place.) Working capital Current ratio Debt-to-assets ratio Debt-to-equity ratio
Excel Activity: Calculating the WACC Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): Current assets Net fixed assets Total assets Accounts payable and accruals Short-term debt Long-term debt Preferred stock (10,000 shares) Common stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity 2021 $1,750 3,250 $5,000 Skye's earnings per share last year were $3.50. The common stock sells for $45.00, last year's dividend (Do) was $2.60, and a flotation cost of 11% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8%. Skye's preferred stock pays a dividend of $3.60 per share, and its preferred stock sells for $30.00 per share. The firm's before-tax cost of debt is 12%, and its marginal tax rate is 25%. The firm's currently outstanding 12% annual coupon rate, long-term debt sells at par value. The market risk premium is 6%, the risk-free…
Davidson Corporation: Balance Sheet as of December 31, 2021 (millions of dollars) Assets Cash and equivalents Accounts receivable Inventories Total current assets Net plant and equipment Total assets EBIT Interest Liabilities and Equity Accounts payable Accruals Notes payable Total current liabilities Long-term bonds Total liabilities Common stock (100 million shares) Retained earnings Common equity $ 3,730 Total liabilities and equity EBT Taxes (25%) Net income 20 585 840 Davidson Corporation: Income Statement for Year Ending December 31, 2021 (millions of dollars) Sales Operating costs excluding depreciation and amortization EBITDA Depreciation and amortization Common dividends paid Earnings per share $ 1,445 2,285 130 220 230 580 1,500 $ 2,080 250 $ 1,400 $1,650 $ 3,730 $ $ 9,500 7,570 $ 1,930 480 $ 1,450 150 $ $ 1,300 325 975 335 9.75
Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): 2021 Current assets $ 1,600 Net fixed assets 2,400 Total assets $ 4,000 Accounts payable and accruals $ 600 Short-term debt 200 Long-term debt 1,275 Preferred stock (15,000 shares) 325 Common stock (40,000 shares) 775 Retained earnings 825 Total common equity $ 1,600 Total liabilities and equity $ 4,000 Skye's earnings per share last year were $2.90. The common stock sells for $45.00, last year's dividend (D0) was $1.90, and a flotation cost of 8% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skye's preferred stock pays a dividend of $3.00 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 8%, and its marginal tax rate is 25%. The firm's currently outstanding…
Myers Company provides you with the following condensed balance sheet information. Assets 0000 Liabilities and Stockholders’ Equity Current assets $ 40,000 Current and long-term liabilities 00 $100,000 Equity investments 60,000 Stockholders’ equity 00 00 Equipment (net) 250,000 00Common stock ($5 par) $ 20,000 00 Intangibles $160,000 00Paid-in capital in excess of par 110,000 00 00Total assets $410,000 00Retained earnings 0180,000 $310,000 00 00 0000Total liabilities and stockholders’ equity 00 $410,000 Instructions For each of the following transactions, indicate the dollar impact (if any) on the following five items: (1) total assets, (2) common stock, (3) paid-in capital in excess of par, (4) retained earnings, and (5) stockholders’ equity. (Each situation is independent.) a. Myers declares and pays a $0.50 per share cash dividend. b. Myers declares and issues a 10% stock dividend when the market price of the stock is $14 per share. c.…
Burkhart Corporation has the following data as of December 31, 2024: Total Current Liabilities $ 45,380 Total Stockholders' Equity Total Current Assets 35,720 Other Assets Long-term Liabilities 140,245 Property, Plant, and Equipment, Net Compute the debt to equity ratio at December 31, 2024. (Round your answer to two decimal places, X.XX.) = $? 37,400 261,005 Debt to equity ratio
Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): 2021 Current assets $ 2,000 Net fixed assets 3,000 Total assets $ 5,000 Accounts payable and accruals $ 900 Short-term debt 200 Long-term debt 1,200 Preferred stock (10,000 shares) 300 Common stock (40,000 shares) 1,175 Retained earnings 1,225 Total common equity $ 2,400 Total liabilities and equity $ 5,000 Skye's earnings per share last year were $3.75. The common stock sells for $65.00, last year's dividend (D0) was $2.75, and a flotation cost of 9% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8%. Skye's preferred stock pays a dividend of $3.85 per share, and its preferred stock sells for $35.00 per share. The firm's before-tax cost of debt is 11%, and its marginal tax rate is 25%. The firm's currently…
Information for Crane Company is given below: Crane Company Balance Sheet December 31, 2021 Assets Equities Cash $ 302000 Accounts payable $ 625000 Accounts receivable (net) 1955000 Income taxes payable 193000 Inventories 2436000 Miscellaneous accrued payables 227000 Plant and equipment, Bonds payable (8%, due 2023) 1900000 net of depreciation 1983000 Preferred stock ($100 par, 6% Patents 262000 cumulative nonparticipating) 700000 Other intangible assets 75000 Common stock (no par, 60,000 Total Assets $7013000 shares authorized, issued and outstanding) 1127000 Retained earnings 2464000 Treasury stock-1500 shares of preferred (223000) Total Equities $7013000 Crane…
On January 1, 2024 Palk Corp. and Spraz Corp. had condensed balance sheets as follows: Current assets Palk Corp. Spraz Corp. $ 99,000 $28,000 125,000 56,000 Noncurrent assets Total assets Current liabilities Long-term debt 224,000 84,000 42,000 14,000 70,000 70,000 Time left 3:54:49 Stockholders' equity 112,000 Total liabilities and stockholders' equity $224,000 $ 84,000 On January 1, 2024, Palk borrowed the entire $72,000 it needed to acquire 80% of the outstanding common shares of Spraz. Sha4res of Spraz are not actively traded on the market. The loan is to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2024. The excess consideration transferred over the underlying book value of the acquired net assets was allocated 35% to inventory and 65% to goodwill. What is the amount attributable to consolidated noncurrent assets at January 1, 2024? O a. $196,000 O b. $181,000 Oc $223,000 Od. $218,500 O e. $194,000

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